On June 12, 2014, the U.S. Department of Labor’s Wage and Hour Division announced proposed regulations implementing Executive Order 13658, which directed an increase in the minimum wage rate for employees working under certain federal contracts. Executive Order 13658, signed by President Obama on February 12, 2014, raises the hourly minimum wage for covered employees to $10.10, effective January 1, 2015, with additional annual increases thereafter at the direction of the Secretary of Labor. The proposed regulations represent the Wage and Hour Division’s initial attempt at fleshing out the requirements of the Executive Order.

Major Features of the Proposed Regulations

The proposed regulations clarify which contracts will be covered by the Executive Order. According to the proposal, the following types of contracts will be subject to the Executive Order’s minimum wage provisions:

  1. Federal construction contracts covered by the Davis-Bacon Act (but not those covered only by the Davis-Bacon Related Acts);
  2. Procurement and nonprocurement contracts exceeding $2,500 that are covered by the Service Contract Act;
  3. Concession contracts with the federal government (for example, contracts to furnish food, lodging, souvenirs, or recreational equipment on federal property); and
  4. Contracts to provide services to federal employees, their dependents, or the general public on federal property (for example, a federal lease to operate a daycare center in a federal building).

The types of covered contracts identified above and replacements for such contracts will be subject to the minimum wage requirements of Executive Order 13658 only if they result from solicitations issued on or after January 1, 2015 or are awarded outside the solicitation process on or after January 1, 2015. The proposed regulations exclude certain federal contracts from coverage, including grants, contracts with Indian Tribes under Public Law 93-638, and contracts for services that are exempted from coverage under the Service Contract Act and not otherwise expressly covered by the proposed regulations.

Employees whose wages are subject to the Fair Labor Standards Act, the Davis-Bacon Act, or the Service Contract Act are entitled to the minimum wage established by Executive Order 13658 for all hours spent working under a covered contract. In addition, employees who perform support work necessary for the performance of a contract covered by the Davis-Bacon Act or the Service Contract Act are entitled to the Executive Order’s minimum wage rate. The Executive Order’s full minimum wage will also apply to disabled workers who are otherwise eligible to be paid a subminimum wage under the Fair Labor Standards Act. However, the proposed regulations provide for a subminimum wage for tipped employees, although it is substantially higher than the subminimum wage for tipped employees that is currently available under the Fair Labor Standards Act.

The proposed regulations provide that federal agencies must include a minimum wage clause in all covered contracts, and covered contractors and subcontractors must include that clause in all lower-tier subcontracts. The proposed regulations strictly limit the deductions that an employer may make from the Executive Order’s minimum wage, set minimum standards for the frequency of wage payments, and require covered contractors and subcontractors to maintain certain records relating to workers covered by the Executive Order. Complaints about alleged violations of the Executive Order or its implementing regulations may be filed with the Wage and Hour Division. Contracting agencies may withhold contract payments from employers found to be in violation of the contractual minimum wage clause, and violators may also be debarred from future federal contracts and ordered to pay back pay.

Practical Impact

The proposed regulations under Executive Order 13658 indicate that federal contractors and subcontractors can expect to incur additional labor costs and administrative obligations under future contracts. Interested persons may submit comments about the proposed regulations to the Wage and Hour Division, which will consider those comments in formulating the final regulations under Executive Order 13658. The agency expects to issue the final regulations by October 1, 2014.